Republic of Tajikistan—Letter of Intent, Supplemental Memorandum of Economic and Financial Policies, and Technical Memorandum of UnderstandingDushanbe, June 21, 2003

The following item is a Letter of Intent of the
government of the Republic of Tajikistan, which describes the policies
that the Republic of Tajikistan intends to implement in the context
of its request for financial support from the IMF. The document,
which is the property of the Republic of Tajikistan, is being made
available on the IMF website by agreement with the member as a service
to users of the IMF website.

Mr. Managing Director, permit me to take this opportunity to express my
gratitude to the International Monetary Fund for its constant support
for Tajikistan in the process of its reforms.

During April/May of this year, the Government of Tajikistan held discussions
with Fund staff for the first review under the Poverty Reduction and Growth
Facility (PRGF) arrangement. Based on these discussions, we have prepared
a supplement to the Memorandum of Economic and Financial Policies submitted
to you on November 13, 2002. This supplement reflects the impact of recent
economic developments on the macroeconomic framework; additional measures
we will take to strengthen the structural reform effort; quantitative
performance criteria; and structural performance criteria and benchmarks
to cover the period April 1–December 31, 2003.

All of the quantitative performance criteria for end-March 2003 were
observed. Two of the program's four structural performance criteria were
also observed. The continuous performance criterion prohibiting the National
Bank of Tajikistan (NBT) from issuing directed credit was not observed.

Since then, no new directed credits have been issued by the NBT and outstanding
ones are being repaid. As well, the NBT has begun to restructure its operations
and has taken measures to prevent such occurrences in future. The continuous
performance criterion prohibiting the accumulation of new external payments
arrears was not observed. While we made a payment towards fulfilling our
debt service obligations to the U.S. government, this payment was delayed
and insufficient to cover late charges. We have since cleared all arrears
to the U.S. government and improved our communications with the creditor.
The structural performance criterion requiring the unification of gas
tariffs was implemented, but with a delay. Based on these remedial actions,
we request a waiver for the non-observance of these two continuous and
one structural performance criteria.

On the basis of performance during the period up to end-March 2003 and
the policies set out in the attached supplemental memorandum of understanding,
we request the completion of the first review under the PRGF arrangement.

We believe that the policies described in the supplemental Memorandum
attached to this letter (which builds on our earlier understandings) will
enhance the prospects for achieving the objectives of our economic program
for 2002. We intend to remain in close consultation with Fund staff on
the adoption of any measures that may be appropriate, in accordance with
IMF policies on such consultations, and will provide the staff with information
it requests for monitoring economic developments and progress in the implementation
of polices and in reaching the objectives of the program supported by
the PRGF arrangement. In addition, we stand ready to take any further
measures, in consultation with Fund staff, on economic and financial policies
that might be necessary to ensure that the overall objectives of the program
can be attained. In order to enhance transparency of our economic policies,
we request that this letter, the supplemental Memorandum of Economic and
Financial Policies, the Technical Memorandum of Understanding, and the
Staff Report be published on the Fund's website.

Supplemental Memorandum of Economic
and Financial Policies
for the Period April 1, 2003 to December 31, 2003
Supported under the Poverty Reduction and Growth Facility

I. Introduction

1. Since 1996, the International Monetary Fund has supported Tajikistan's
economic reform program. Most recently, the Fund approved a three-year
arrangement under the Poverty Reduction and Growth Facility (PRGF). Although
we have achieved some progress with the implementation of the Fund-supported
program, there have also been delays and shortcomings resulting from capacity
constraints. We failed to observe the two continuous performance criteria
prohibiting issuance of directed credits by the NBT and prohibiting the
accumulation of new external payments arrears, and the structural performance
criterion introducing a unified gas tariff. We have, however, taken appropriate
remedial actions on the basis of which we request a waiver for the non-observance
of these structural performance criteria. We deeply regret the most recent
incident of misreporting due to the accumulation of new external payments
arrears. Although in the past we have taken steps to prevent the recurrence
of such incidents, we will now intensify our efforts. We have fully implemented
the three structural benchmarks for end-December 2002, but with a delay.
For end-March 2003, we met all the quantitative performance criteria (Annex
I), but missed the structural benchmark for developing a timetable
for civil service reform (Annex II). Given these problems,
we intend to undertake measures that will strengthen program performance.
These measures, along with revised quantitative performance criteria for
end-September 2003, are described in this supplemental Memorandum of Economic
and Financial Policies (MEFP).

2. Our economic policies have contributed to improved macroeconomic stability
and strong growth. In 2002, real GDP grew by 9.1 percent. Based on the
strong growth in the first half of 2003, we continue to project real GDP
growth of at least 6 percent in 2003. Progress towards price stability,
however, was limited; inflationary pressures caused end-period inflation
for 2002 to be higher than projected. Because of the spillover of inflation
from late 2002, higher energy prices and the changing nature of regional
trade, we now expect end-period inflation of 9 percent for 2003. Our fiscal
performance remained strong as we were able to achieve a nearly balanced
budget because of higher-than-programmed revenue collections. The current
account deficit narrowed to 2.8 percent of GDP in 2002 as a result of
higher remittances, increased humanitarian aid flows and good harvests.
We implemented several important reforms in the energy and banking sectors,
but with delays due to capacity constraints.

3. The revised indicative targets for end-June, end-September and end-December
2003 and the performance criteria for end-September 2003 are detailed
in Annex III. Structural performance criteria and
benchmarks through end-September 2003 are proposed in Annex
IV. Performance relative to these targets, criteria and benchmarks
will be measured as detailed in the Technical Memorandum of Understanding
in Annex V. In addition, we have completed a prior
action relating to the development and implementation of a comprehensive
mechanism for mitigating the effects of energy sector reforms on poor
households.

II. Fiscal Policy

4. Our fiscal policy continues to be prudent. We maintained control over
expenditures and modestly increased revenue collections as a share of
GDP for 2002. As a result, the overall fiscal deficit, excluding the public
investment program (PIP), for 2002 was SM 5.9 million (0.2 percent of
GDP), which was less than projected. For 2003, we expect the deficit (excluding
the PIP) to be no more than SM 36.4 million, or 0.9 percent of GDP, including
increased interest payments due to the 2002 rescheduling agreement with
Russia.

5. We plan to refocus our expenditures to better align them with the
goals set out in the PRSP. By end-October 2003, we will submit a supplemental
budget to parliament that contains indicative targets on health and education
expenditures of SM 151.6 million for 2003. These target may be revised
in light of overall revenue performance during the next months. We had
hoped to complete a detailed classification of budgetary expenditures
by end-March 2003, but now expect that it will be finished by end-June
2003. This classification system will provide a basis for improved tracking
of expenditures, especially those for the social sectors, and will be
used to monitor our indicative spending targets. In order to enhance transparency,
we plan to publish our detailed classification of government's education
and health expenditures in Tajikistan's national newspapers on a quarterly
basis beginning end-June 2003. The publication of this information will
provide the public with a breakdown of expenditures by individual facility,
e.g., schools and clinics.

6. Although there continues to be an urgent need for increased public
investment, we reaffirm our commitment to limit annual disbursements under
the public investment program (PIP) to 3 percent of GDP in 2003 and 2004.
In light of the recent consultative group meeting, we plan to revise the
PIP such that we increase the share of social sector expenditures under
the PIP beginning in 2004. Any decision to increase annual disbursements
as a share of GDP under the PIP will be taken in consultation with Fund
staff and will take into account our revised investment priorities, absorptive
capacity, the availability of resources, and the sustainability of our
external debt.

7. Continued expenditure discipline requires moderation in civil service
wage increases. We raised civil service wages by 20 percent as of April
1, 2003 and will undertake further wage increases in 2003 only to the
extent that reductions in civil service employment are achieved. Hence,
we will ensure that the civil service wage bill will be no more than SM
120.8 million in 2003. In collaboration with the World Bank, we are developing
a timetable for civil service reform that is aimed at reducing staffing
levels and improving the efficiency of the civil service. During the first
quarter of 2003, we have reduced civil service employment by 5 percent,
and we plan further reductions during 2004. We will complete a census
of the civil service and construct a database of civil service positions,
grades and salaries by end-June 2003.

8. While revenue collection has increased, further improvements are required
to sustain our revenue effort over the medium and long-term. To this end,
we created a modernization office to oversee a comprehensive improvement
of our tax and customs system. The tax and customs codes are currently
being revised and we plan to submit the revised versions to government
by end-December 2003. The revisions to the tax and customs codes will
be based on the recommendations made by the 2002 FAD mission. As of May
1, 2003 (Resolution 153), we harmonized excise rates on imported and domestically
produced alcohol products. We plan to complete a comprehensive survey
of the number of duties, fees and charges collected by government and
other public institutions by end-December 2003. To increase transparency,
we will publish on a quarterly basis an inventory of the 50 corporate
and individual taxpayers that have the largest tax arrears beginning end-September
2003.

9. In order to improve the performance of customs revenues and to harmonize
our tariff structure with that of other Eurasian Economic Community members,
we plan to revise the present tariff system. The total number of rates
under the new tariff system will be 5, i.e., 0, 2, 5, 10, and 15 percent.
We will consult with Fund staff before making changes to this proposal.
The government will limit export and import licensing to goods that adversely
affect health, environment, or national security. Improved administration
of our VAT system is another measure that is critical to revenue collection.
By end-June 2003, we will compile and publish an inventory of each VAT
refund claim and make these payments by end-September 2003.

III. Monetary Policy

10. The NBT has recently begun implementing a restructuring process that
will improve its institutional integrity and the implementation of monetary
policy. During the past year there have been several instances when directed
credits were issued. Partly as a result of these credits our control over
reserve money was inadequate, thereby contributing to inflationary pressures.
As part of the restructuring of the NBT, we established a monetary policy
committee (MPC) to improve liquidity management. The MPC meets on a weekly
basis and issues instructions for the purchase and/or sale of foreign
exchange and other monetary instruments. The weekly instructions of the
MPC serve as the sole basis for the NBT's monetary policy interventions.
Further, the NBT issued a resolution in February 2003 withdrawing lending
authority from NBT department heads, branch managers, and deputy chairmen.
In May 2003, the NBT issued resolutions that strictly limit the operations
of all branches to cash and settlement operations only. Additionally,
NBT staff was reduced by more than 10 percent in the six months ending
March 2003.

11. We will complete the restructuring of the NBT by end-September 2003
in accordance with the plan agreed with Fund staff. Key elements of this
plan include reducing the number of organization units and centralizing
all accounting functions into one department. While all these measures
will contribute to improving the NBT's financial condition, its net worth
remains negative. Therefore, the NBT will not pay any dividends to the
Ministry of Finance as long as the NBT's net worth remains negative; further,
the NBT will not make any contribution to a deposit insurance scheme.

IV. Structural Policy

12. The main areas of structural reform under the Fund-supported program
continue to be banking, energy and agriculture. With regard to banking,
we plan to finalize the restructuring of the Agroinvestbank by dividing
its operations into two independent corporate entities, one dealing solely
with financing cotton production and one that continues its commercial
bank operations. This separation into two independent entities will be
completed by end-June 2003 and will promote transparency of the bank's
operations. Further, by end-June 2003, the NBT and the Ministry of Finance
will jointly prepare a plan in consultation with Fund staff, that will
ensure that the newly formed bank meets the minimum capital requirement.

13. To further strengthen the banking sector, by end-May 2003, we will
revoke the banking licenses of the two commercial banks—in consultation
with Fund staff—whose financial condition and lending practices
put their deposits at unacceptable risk. We will close or merge these
banks by end-September 2003. By end-December 2003, we will eliminate all
waivers for the minimum capital requirement. To limit a further erosion
of the remaining banks' capital, we will allow banks to hold up to 50
percent of their capital in foreign exchange as of end-December 2003.
Further, we will delay an increase in the minimum capital requirement
from $1.5 million to $2 million until end-2004.

14. We plan to continue reducing quasi-fiscal deficits in the gas sector.
An appropriate compensation mechanism for protecting the poorest households
from increases in gas tariffs will be introduced no later than end-June
2003. This mechanism will be effective retroactively from January 1, 2003
and will provide a total of SM 12 million from the budget for the purpose
of compensating low income households. The target group for this mechanism
will exclude privileged categories of consumers. In April 2003, we increased
the gas tariff to SM 180 per thousand cubic meters which includes an adjustment
for exchange rate depreciation of 3 percent in Q1 2003 (Resolution 154,
March 31, 2003). On July 1, 2003, we will raise gas tariffs to at least
SM 200 per thousand cubic meters and increase household norms from 16
cubic meters per person per month to 30 cubic meters per person per month.
From October 1, 2003, we will implement the automatic quarterly adjustor
of gas tariffs for depreciation in the nominal exchange rate. We will
also eliminate all privileged categories of consumers of gas, electricity
and heat by end-September 2003. We plan to expand our efforts to improve
payment discipline in the energy sector by ensuring that budget entities
and state-owned enterprises do not accumulate any new arrears to Naftrason,
Barki Tajik, and Tajikgas from end-June 2003 onwards. To increase transparency
we will introduce a separate line item for public utility payments in
the supplemental budget for 2003.

15. Effective farm restructuring requires addressing the debt burden
of the remaining state-owned farms. Although we hoped to resolve this
issue by end-December 2002, it proved to be more complex than anticipated.
We are presently working with the Asian Development Bank to complete an
inventory of farm debt by end-September 2003. Also by end-October 2003,
we will finalize a plan for restructuring this debt. The plan will include
recommendations to take into consideration the responsibilities of dekhan
farms, exporters, government, and other relevant parties.

16. To promote transparency, we hereby request that the letter of transmittal,
and the Memorandum of Economic and Financial Policies be published on
the IMF website.

ANNEX I

Tajikistan: Quantitative
Performance Criteria for the First Annual Program Under
the PRGF Arrangement, October 2002–March 2003
(In stocks; unless otherwise indicated)

2002

2003

End-December

End-March

Indicative
targets

Adjusted
Indicative
Targets 1/

Actual

Performance
criteria

Adjusted
Performance
criteria 2/

Actual

Performance Criteria:

(In millions of somoni)

1. Ceiling on net domestic assets of
the NBT 3/

106.8

169.3

167.4

104.6

168.5

124.6

2. Ceiling on net credit of the banking
system to general government 3/

12.9

-4.1

-16.5

25.6

-0.5

-66.9

3. Ceiling on the cumulative overall
fiscal deficit of the general government 4/ 5/
(excluding foreign-financed public investment program)

-25.8

-25.8

-25.0

-24.2

-24.2

26.4

4. Ceiling on general government wage,
and nonworking pensioners' pension arrears 6/

0.0

0.0

0.0

0.0

0.0

0.0

5. Floor on tax collection of the Ministry
of State Revenues and Duties 4/

93.3

93.3

105.9

191.3

191.3

227.8

(In millions
of U.S. dollars; unless otherwise specified)

6. Floor on total net international
reserves 3/

19.4

-1.4

5.9

20.4

-0.9

16.6

7a. Ceiling on the contracting or guaranteeing
of short-term non-concessional external debt with original maturity
of up to and including one year 7/

0.0

0.0

0.0

0.0

0.0

0.0

7b. Ceiling on the contracting or guaranteeing
of medium and long-term
nonconcessional external debt with original maturity of more than
one year 7/

0.0

0.0

0.0

0.0

0.0

0.0

8. New external payments arrears (in
U.S. dollars) 6/

0.0

0.0

2,207

0.0

0.0

10,405

(In millions
of somoni)

Indicative target:

Ceiling on reserve money

165.1

165.1

185.0

165.8

165.8

174.3

Memorandum items:

Program exchange
rate (SM/US$)

3.0

3.0

3.0

3.0

3.0

3.0

Disbursements of
balance of payment
support (in millions of U.S. dollars)

26.7

5.0

5.0

0.0

0.0

0.0

Sources: Tajik authorities; and Fund staff estimates.
1/ Adjusted for an unprogrammed disbursement from the Asian Development
Bank (US$5 million), the non-disbursement of budget support from the
World Bank (US$24.7 million)
and the European Union (US$2 million). Also adjusted for the principal
payment to the EU ($0.87 million) that was programmed for Q4 2002
but due in Q1 2003, and for the use of
Tajikistan's claim on the Central Bank of Russia (CBR). Net international
reserves and net domestic assets are evaluated at program exchange
rates of SDR1 = U.S. dollars 1.299 as
specified in the Technical Memorandum of Understanding (EBS/02/188).
Therefore, they are not directly comparable with figures in tables
6 and 7 at revised program exchange rates
of SDR1 = U.S. dollars 1.366.
2/ Adjusted for unprogrammed disbursement by the AsDB in Q4 2002 ($5
million), and the non-disbursement of $24.7 million from the World
Bank and $2 million from the EU in
Q4 2002. Also adjusted for the revision of principal due to Kazakhstan
in Q1 2003 from $0.47 million to $0.08 million, and for the eliminated
use of Tajikistan's claim on the Central
Bank of Russia (CBR) as ownership of the claim rests with the government
of Tajikistan. Net international reserves and net domestic assets
are evaluated at program exchange rates
of SDR1 = U.S. dollars 1.299 as specified in the Technical Memorandum
of Understanding (EBS/02/188). Therefore, they are not directly comparable
with figures in tables 6 and 7
at revised program exchange rates of SDR1 = U.S. dollars 1.366.
3/ Excludes deposits related to the U.S. grant for project financing
($2.4 million at end-March 2003).
4/ Cumulative from October 1, 2002.
5/ On a cash basis, the ceiling will be adjusted downward by 100 percent
for any rescheduled interest payments and for any accumulation of
arrears.
6/ A continuous performance criterion.
7/ By the government, NBT or any other agency acting on behalf of
the government as defined in the Technical Memorandum.

ANNEX II

Tajikistan: Structural Performance Criteria
and Benchmarks for the First Annual Program Under the PRGF Arrangement,
December 2002-March 2003

Measure

Target Date

Status

Structural Performance Criteria

Prohibit the NBT from issuing directed credits.

Continuous

Not met. Directed credits were extended until
mid-February 2003.

Prohibit the NBT from making expenditures not related
the its core business activities or paying dividends while it has
negative net worth.

Increase the collection rates of Tajikgas so that
on average 60 percent of all households pay for the gas they receive.

End-June 2003

...

Structural Benchmarks

Finalize a plan for mitigating the effects of higher
energy tariffs on low-income households and ensure that the 2003 budget
provides adequate resources for implementing the plan. This plan will
include a timetable for mandatory installation of gas meters in all
households and enterprises.

End-December 2002.

Met with a delay. Resolution No. 144 (March
31, 2003) did not provide an effective mechanism. The revised mechanism
satisfies the benchmark.

The NBT will finalize an inventory of all guarantees,
pledges and other NBT contingencies under the control of the Head
of Accounting Department with required inputs from all areas of the
NBT.

End-December 2002

Met with a delay by mid-February 2003.

Implement automatic quarterly adjustments of all
utility tariffs to account for changes in the nominal exchange rate.

End-December 2002

Met with a delay. The tariff increase to SM
180 per thousand cubic meters effective April 1, 2003 (Resolution
No. 154, April 24, 2003) includes the exchange rate adjustment for
the first quarter of 2003.

The government will finalize a timetable for downsizing
the civil service

End-March 2003

Not met.

Close or merge all banks that are not being restructured
and do not fulfill the prudential requirements as of end-March 2003.

End-September 2003

...

ANNEX III

Tajikistan: Quantitative
Performance Criteria for the Second Review
of the First Annual Program Under the PRGF Arrangement, April–December
2003
(In stocks; unless otherwise indicated)

2003

End-Jun.

End-Sep.

End-Dec.

Revised
Indicative
targets

EBS/02/188
Supplement 1

Revised
Performance
criteria

EBS/02/188
Supplement 1

Indicative
Targets

Performance Criteria:

(In millions of somoni)

1. Ceiling on net domestic assets of
the NBT

67.9

108.3

92.5

79.9

117.3

2. Ceiling on net credit of the banking
system to general government 1/

-120.4

28.4

-97.4

11.2

-71.5

3. Ceiling on the cumulative overall
fiscal deficit of the general government 2/ 3/
(excluding foreign-financed public investment program)

-20.9

-31.1

-54.4

-37.4

-73.8

4. Ceiling on general government wage,
and nonworking pensioners' pension arrears 4/

0.0

0.0

0.0

0.0

0.0

5. Floor on tax collection of the Ministry
of State Revenues and Duties 2/

114.2

302.6

226.1

401.0

349.5

(In millions
of U.S. dollars)

6. Floor on total net international
reserves

35.1

21.6

28.7

34.2

22.4

7a. Ceiling on the contracting or guaranteeing
of short-term non-concessional external debt with original maturity
of up to and including one year 5/

0.0

0.0

0.0

0.0

0.0

7b. Ceiling on the contracting or guaranteeing
of medium and long-term
nonconcessional external debt with original maturity of more than
one year 5/

0.0

0.0

0.0

0.0

0.0

8. New external payments arrears 4/

0.0

0.0

0.0

0.0

0.0

(In millions
of somoni; unless otherwise specified)

Indicative target:

Ceiling on reserve money

173.1

173.2

178.6

182.6

184.6

New arrears of budget entities
and key state-owned enterprises to Naftrason,
Barqui Tajik and Tajikgas

0.0

0.0

0.0

0.0

0.0

Floor on health and education
spending 6/

75.8

...

113.7

...

151.6

Memorandum items:

Program exchange
rate (SM/US$)

3.0

3.0

3.0

3.0

3.0

Disbursements of
balance of payment support (in millions of U.S. dollars) 7/

24.7

0.0

0.0

12.5

0.0

Withdrawal from
government project accounts (in millions of somoni)

1.5

...

3.0

...

2.7

Sources: Tajik authorities; and Fund staff estimates.
1/ Excludes deposits related to the U.S. grant for project financing.
2/ Cumulative from April 1, 2003.
3/ On a cash basis, the ceiling will be adjusted downward by 100 percent
for any rescheduled interest payments and for any accumulation of
arrears.
4/ A continuous performance criterion.
5/ By the government, NBT or any other agency acting on behalf of
the government as defined in the Technical Memorandum.
6/ Cumulative from January 1, 2003.
7/ Disbursement in Q2 2003 is expected from the World Bank.

ANNEX IV

Tajikistan: Prior Action, Structural Performance
Criteria and Benchmarks for the Second Review of the First Annual
Program Under the PRGF Arrangement, April-September 2003

Measure

Target Date

Prior action

Develop and implement an effective compensation mechanism
for mitigating the effects of energy sector reforms on poor households.
The revised mechanism should be designed in consultation with Fund
staff.

Structural Performance Criteria

Prohibit the NBT from issuing directed credits.

Continuous

Prohibit the NBT from making expenditures not related
to its core business activities or paying dividends while it has negative
net worth.

Continuous

Raise gas tariffs to at least SM 200 per thousand
cubic meters.

July 1, 2003

Eliminate all privileged categories of consumers
of gas and electricity

End-September 2003

Structural Benchmarks

Complete the restructuring of the NBT in accordance
with the plan agreed with Fund staff.

End-September 2003

Finalize the division of Agroinvestbank into two
independent corporate entities, one that operates as a non-bank cotton
financing institution and one that is a commercial bank.

End-June 2003

ANNEX V

REPUBLIC OF TAJIKISTAN

Technical Memorandum of Understanding
for the PRGF Arrangement 2003-2005

1. This memorandum defines variables that constitute quantitative performance
criteria and indicative targets under the Poverty Reduction and Growth
Facility Arrangement (PRGF), and sets out the reporting requirements for
the authorities and the National Bank of Tajikistan (NBT).1

I. Quarterly Targets

A. Fiscal Deficit of the General Government

Table 1. Ceiling on the Cumulative Overall
Deficit
of the General Government

(In millions of somoni)

Cumulative deficit from
April 1, 2003 to:

June 30,
2003 (indicative target)

-20.9

September
30, 2003

-54.4

December
31, 2003

-73.8

Definitions

2. The general government budget is defined to include the republican
budget, local (including municipal) budgets, and all extra-budgetary funds
at all levels of general government, including the social protection fund
(SPF) but excluding the externally financed public investment program.
The overall cash deficit of the general government is defined from
the financing side as the sum of the following:

(i) The change in net claims (transactions) of the NBT on the general
government which includes all deposits of the general government with
the NBT, counterpart deposits (which reflect balance of payment and/or
general budget support from IFIs and other donors), NBT loans and advances
to the general government, NBT holdings of government securities, bank
restructuring costs, and the privatization account (where proceeds from
the privatization of state property are held);

(ii) The change in net claims (transactions) on the general government
of the rest of the domestic banking system which are defined to include
the net position of the general government with respect to other domestic
commercial bank assets (loans, overdrafts, cash advances, holdings of
treasury bills or other securities) and liabilities (deposits, etc.);

(iii) The change in net claims (transactions) on the general government
of domestic nonbank institutions and households is defined to include
net sales of treasury bills, bonds or other government securities to
nonbank institutions and households (including nonresidents and nonresident
financial institutions), plus any other increase in liabilities of the
general government to domestic nonbank institutions or households. Included
in this item are also compensation payments (-) to Tajik Rail for its
servicing of external debt to Uzbekistan;

(iv) Gross proceeds from the privatization of state property, which
are kept in a separate account with the NBT, are defined as all receipts
originating from the sale of state property; and

(v) Net foreign financing of the general government which is defined
as the difference between gross disbursements of foreign financing excluding
the externally-financed public investment program and amortization of
government debt to foreign financial and nonfinancial institutions,
plus principal arrears, debt rescheduling and the drawdown of Tajikistan's
claim on the Central Bank of Russia.

3. The augmented deficit of the general government is defined from the
financing side as the sum of the same items as in the definition of the
overall cash deficit of the general government plus the counterparts (-)
to increases in net credits or net claims on the general government from
the NBT or commercial banks as a result of the resolution of the bad loans
problem under the bank restructuring program. These counterparts consist
of the full value of the loans taken over by the government.

4. Monthly data on net claims of the domestic banking system on the general
government are taken from the balance sheets of the NBT and commercial
banks. The Ministry of Finance shall provide information on, and confirm
the amounts of general government deposits held abroad, disbursements
of foreign loans to the general government, net sales of treasury bills
and other securities, borrowing from the nonbank sector, as well as gross
receipts and expenditures of the central government privatization account.
It shall provide detailed monthly data on: (i) revenues, expenditures
and lending operations of the state and local budgets, as well as all
budgetary and extra-budgetary funds; (ii) quasi-fiscal operations; (iii)
estimates of the outstanding stock of wage and pension and all other domestic
expenditure arrears; and (iv) estimates of the outstanding stock of tax
and other revenue arrears to the general government.

Adjustors

5. The ceiling on the cumulative overall fiscal deficit will be adjusted
downward by 100 percent for any overdue or rescheduled interest obligations.

B. Tax Collection of the Ministry of State Revenues
and Duties

Table 2. Floor on the Tax Collection of
the Ministry
of State Revenues and Duties

(In millions of somoni)

Cumulative revenues from
April 1, 2003 to:

June 30,
2003 (indicative target)

114.2

September
30, 2003

226.1

December
31, 2003

349.5

Definitions

6. Tax collection include all taxes collected by the Ministry
of State Revenues and Duties. With regard to internal taxation excluded
from the definition is: any tax offsets or in?kind payments, sales taxes
on cotton and aluminum exports, taxes, charges, and fees collected by
the Social Protection Fund, and any proceeds from loans, or other banking
system credits, the issuance of securities, or from the sale of state
assets. With regard to foreign taxes, custom revenues are defined to include
import duties, export duties and taxes, customs duties, exchange taxes,
and other taxes (including VAT) on international trade and transactions.

C. Limits on the Stock of Net Domestic Assets of the
NBT

Table 3. Ceiling on the Stock of Net Domestic
Assets of the NBT

(In millions of somoni)

June 30,
2003 (indicative target)

67.9

September
30, 2003

92.5

December
31, 2003

117.3

Definitions

7. Net domestic assets (NDA) of the NBT are defined as: reserve
money minus net foreign assets of the NBT. Reserve money is composed of
currency in circulation, required reserves, other bank reserves, and deposits
of non-government non-banks with the NBT. Net foreign assets of the NBT
includes net international reserves in convertible currencies. The NBT's
net domestic assets comprises the following assets and liabilities: net
credit to the general government, claims on banks, credit to the economy,
and other items net (OIN). OIN includes, the foreign exchange re-valuation
and capital accounts of the NBT.

8. The NDA ceiling should be also adjusted for changes in reserve requirements,
in accordance with the following formula:

∆NDA = ∆rBο + rοΔB
+ ΔrΔB

where rο denotes the reserve requirement ratio prior
to any change; Bο denotes the programmed level of the
reservable base money in the period prior to any change; ∆r is the
change in the reserve requirement ratio; and ΔB denotes the immediate
change in the reservable base with respect to the programmed base money
level as a result of changes in the definition.

Adjustors

9. The ceiling on net domestic assets of the NBT will be adjusted: (i)
downward/upward by 100 percent for excesses/shortfalls of the disbursement
of (non-project) foreign loans and cash grants; (ii) downward/upward by
100 percent for the excesses/shortfalls of privatization receipts; (iii)
downward by 100 percent for any overdue or rescheduled debt service obligations;
and (iv) upward by 100 percent for withdrawals from government project
accounts at the NBT in excess of programmed levels and downward by 100
percent for disbursements in excess of programmed levels.

Table 4. Ceiling on Net Credit of the Banking
System to General Government

(In millions of somoni)

June 30,
2003 (indicative target)

-120.4

September
30, 2003

-97.4

December
31, 2003

-71.5

Definitions

10. Net credit of the banking system to the general government is the
sum of net credit from the NBT to general government and net credit from
the rest of the domestic banking system to general government, both as
defined in section A above.

Adjustors

11. The ceiling on net credit of the banking system to general government
will be adjusted: (i) downward/upward by 100 percent for excesses/shortfalls
of the disbursement of (non-project) foreign loans and cash grants; (ii)
downward/upward by 100 percent for the excesses/shortfalls of privatization
receipts; and (iii) downward by 100 percent for any overdue or rescheduled
debt service obligations.

E. Net International Reserves

Table 5. Floor under the Stock of Net International
Reserves
of the NBT in Convertible Currencies

(In millions of U.S. dollars)

June 30,
2003 (indicative target)

35.1

September
30, 2003

28.7

December
31, 2003

22.4

Definitions

12. Total net international reserves of the NBT are defined as
the difference between total gross international reserves of the NBT and
total reserve liabilities of the NBT. Total gross international reserves
of the NBT are defined as the NBT's holdings of monetary gold, holdings
of SDRs, any reserve position in the IMF, holdings of convertible currencies
in cash or in nonresident banks that are readily available. Also included
are holdings of foreign currency-denominated securities issued by governments
or central banks of OECD member states. Excluded are capital subscriptions
in foreign financial institutions, non-liquid assets of the NBT, convertible
currency denominated claims on domestic banks and other residents, assets
in non-convertible currencies, foreign assets pledged as collateral or
otherwise encumbered and the net forward position, if any (defined as
the difference between the face value of foreign currency denominated
NBT off balance sheet claims on nonresidents and foreign currency obligations
to both residents and non-residents). Reserve liabilities of the
NBT are defined as outstanding IMF credit, and liabilities of the NBT
to nonresidents with an original maturity of up to and including one year.

13. For the purpose of program monitoring, U.S. dollar denominated components
of the balance sheet will be valued at the program exchange rate, and
other foreign currency denominated items will be valued at cross rates
between the program exchange rate of the U.S. dollar and current official
exchange rates of the U.S. dollar against those currencies. Official gold
holdings shall be valued at US$333.25 per troy ounce.

14. Fund staff will be informed of details of any gold sales, purchases,
or swap operations during the program period, and any resulting changes
in the level of gross foreign reserves that arise from revaluation of
gold will be excluded from gross reserves (as measured herein).

Adjustors

15. The floor on net international reserves of the NBT will be adjusted:
(i) upward/downward by 100 percent for excesses/shortfalls of the disbursement
of (non-project) foreign loans and cash grants; (ii) upward/downward by
100 percent for the excesses/shortfalls of privatization receipts in foreign
exchange; (iii) upward by 100 percent for any overdue or rescheduled debt
service obligations; and (iv) downward by 100 percent for withdrawals
from government project accounts at the NBT in excess of programmed levels
and upward by 100 percent for disbursements in excess of programmed levels.

F. Limits on Short-, Medium-, and Long-Term External
Debt

Table 6. Cumulative Ceiling on the Contracting
and Guaranteeing of External Debt

0-1 Year Maturity

Over 1 Year Maturity

During the period from end-March
2003 to:

June 30,
2003 (indicative target)

0

0

September
30, 2003

0

0

December
31, 2003

0

0

Definitions

16. The external debt limits (short-, medium- and long-term) apply to
the government of Tajikistan, the National Bank of Tajikistan and any
other agency acting on behalf of the government. For short, medium- and
long-term external debt, the performance criterion applies not only to
debt as defined in point No. 9 of the Guidelines on Performance Criteria
with Respect to Foreign Debt (Decision No. 12274-(00/85), adopted August
24, 2000), but also to commitments contracted or guaranteed for which
value has not been received.

17. The definition of debt set forth in point No. 9 of the guidelines
reads as follows: "(a) For the purposes of this guideline, the term
"debt" will be understood to mean a current, i.e., not contingent,
liability, created under a contractual arrangement through the provision
of value in the form of assets (including currency) or services, and which
requires the obligor to make one or more payments in the form of assets
(including currency) or services, at some future points in time; these
payments will discharge the principal and/or interest liabilities under
the contract. Debts can take a number of forms, the primary ones being
as follows: (i) loans, i.e., advances of money to obligor by the lender
made on the basis of an undertaking that the obligor will repay the funds
in the future (including deposits, bonds, debentures, commercial loans,
and buyers' credits) and temporary exchanges of assets that are equivalent
to fully collateralized loans under which the obligor is required to repay
the funds and usually pay interest, by repurchasing the collateral from
the buyer in the future (such as repurchase agreements and official swap
arrangements); (ii) suppliers' credits, i.e., contracts where the supplier
permits the obligor to defer payments until some time after the date on
which the goods are delivered or services are provided; and (iii) leases,
i.e., arrangements under which property is provided which the lessee has
the right to use one or more specified period(s) of time that are usually
shorter than the total expected service life of the property, while the
lessor retains the title to the property. For the purpose of the guideline,
the debt is the present value (at the inception of the lease) of all lease
payments expected to be made during the period of the agreement excluding
those payments that cover the operation, repair or maintenance of the
property. (b) Under the definition of debt set out in point 9(a) above,
arrears, penalties, and judicially awarded damages arising from the failure
to make payment under a contractual obligation that constitutes debt are
debt. Failure to make payment on an obligation that is not considered
debt under this definition (e.g., payment on delivery) will not give rise
to debt."

18. External debt limits apply to the contracting or guaranteeing
of new nonconcessional short term external debt (with an original
maturity of up to and including one year), and to the contracting or
guaranteeing of new nonconcessional medium- and long-term external debt
(with original maturities of more than one year).

19. Excluded from the external debt limits are loans contracted for the
purpose of debt rescheduling or refinancing if the terms of the new loan
are more favorable. IMF credit is excluded from the external debt limits.
The performance criterion on new nonconcessional short-term external debt
will not apply to loans classified as international reserve liabilities
of the NBT (liabilities of the NBT to nonresidents with an original maturity
of up to and including one year). Normal import-related financing is excluded
from the performance criterion on new short-term external debt.

20. Debt falling within the external debt limits that are denominated
in currencies other than the U.S. dollar shall be valued in U.S. dollars
at the exchange rate prevailing at the time of contracting or guaranteeing
takes place or at the exchange rate stipulated in the contract.

21. For the purposes of the program, the guarantee of a debt arises from
any explicit legal obligation of the government or the NBT or any other
agency acting on behalf of the government to service such a loan in the
event of nonpayment by the recipient (involving payments in cash or in
kind), or indirectly through any other obligation of the government or
the NBT or any other agency acting on behalf of the government to finance
a shortfall incurred by the loan recipient.

22. Concessionality will be based on currency-specific discount rates
based on the OECD commercial interest reference rates (CIRRs). For loans
of an original maturity of at least 15 years, the average of CIRRs over
the last 10 years will be used as the discount rate for assessing the
concessionality of these loans, while the average of CIRRs of the preceding
six-month period will be used to assess the concessionality of loans with
original maturities of less than 15 years. To the ten-year and six month
averages of CIRRs, the following margins will be added: 0.75 percent for
repayment periods of less than 15 years; 1 percent for 15?19 years; 1.15
percent for 20-30 years; and 1.25 percent for over 29 years. Under this
definition of concessionality, only loans with grant element equivalent
to 35 percent or more will be excluded from the debt limits.

II. Continuous Quarterly Targets

A. No Directed Credits by the NBT

23. The NBT will not issue any directed credits. These involve credits
that are issued in the absence of a competitive auction or on non-market
terms and conditions. This requirement will be monitored on the basis
of changes in the NBT's balance sheets supported by the NBT's regular
reporting on the results of its credit auctions, including interest rates,
and amounts bid and received.

B. No Non-Core Activities of the NBT and no Dividend
Payments by the NBT

24. The NBT will not make any expenditures not related to its core business
activities or pay dividends while it has negative net worth.

C. No New External Payments Arrears

25. No new external payments arrears shall be accumulated at any time
under the PRGF arrangement, excluding those which are subject to negotiation
among creditors. External payments arrears are defined as overdue debt
service arising in respect of obligations incurred directly, guaranteed,
or converted into interstate debt by the government of Tajikistan or the
NBT, including penalties or interest charges.

D. Exchange and Payments Arrangements

26. Over the next six months, the Republic of Tajikistan will not: (i)
impose or intensify restrictions on the making of payments and transfers
for current international transactions; (ii) introduce or modify multiple
currency practices; (iii) conclude bilateral payments agreements which
are inconsistent with Article VIII of the IMF's Articles of Agreement;
or (iv) impose or intensify import restrictions for balance of payments
reasons.

E. No Expenditure Arrears of the General Government
and of the Social Protection Fund

27. No new arrears of the general government on wages and of the Social
Protection Fund on transfer payments for non-working pensioners' pension
payments to its regional offices shall be accumulated at any time under
the PRGF arrangement.

28. For purposes of the performance criterion, expenditure arrears shall
be defined as any shortfall in monthly disbursements on wages and in transfers
from the Social Protection Fund to its regional offices. A monthly disbursement
plan will be presented to the Fund staff by the 15th day of the month
preceding the month of actual wage and pension payments.

29. To permit monitoring as defined above, the government will provide
data on actual wage payments and on transfers from the Social Protection
Fund to its regional offices to the IMF staff in the form of treasury
reports and statements from the Social Protection Fund on a monthly basis
no later than 14 days after the end of each month.

III. Continuous Indicative Targets

A. Reserve Money

Table 7. Indicative Ceiling on the Stock
of Reserve Money of the NBT

(In millions of somoni)

June 30,
2003 (indicative target)

173.1

September
30, 2003

178.6

December
31, 2003

184.6

Definition

30. Somoni reserve money of the NBT is defined as the sum of: (i) domestic
currency issued by the NBT; (ii) deposits of commercial banks and other
financial institutions held with the NBT; and (iii) deposit liabilities
of the NBT with respect to the public. Deposits of the general government
are excluded from reserve money, but are included under NDA. NBT reserve
money liabilities with respect to commercial banks and other financial
institutions comprise all deposits held by these institutions at the NBT,
including required reserves and excess reserves held in the correspondent
accounts, but excluding NBT liabilities held by commercial banks and other
financial institutions in the form of short term NBT notes. Deposit liabilities
of the NBT to the public include all deposits placed at the NBT, in domestic
or foreign currency, by the nonbank public.

B. New Arrears by Budget Entities and State-Owned Enterprises
to Naftrason, Barqui Tajik and Tajikgas

Table 8. Indicative Ceiling on New Arrears
of Budget-Entities and Key State-Owned Enterprises to Barqui Tajik,
Naftrason and Tajikgas

(In millions of somoni)

June 30,
2003 (indicative target)

0

September
30, 2003

0

December
31, 2003

0

Definition

31. Budget entities include all entities that are included in the state
budget law. Key state-owned enterprises are Tadaz, Nitrogen (Sarband city),
and Tajikcement.

C. Education and Health Expenditures

Table 9. Indicative Floor on Health and
Education Expenditures

(In millions of somoni)

June 30,
2003 (indicative target)

75.8

September
30, 2003

113.7

December
31, 2003

151.6

Definition

32. Education and health expenditures include education and health expenditures
at all levels of government.

1 Quantitative targets are
based on a program exchange rate of SM 3.0 = US$1 and SDR 1 = US$1.366.2 The change in net credit to general government
in the NBT balance sheet may differ from the change in NBT net claims
(transactions) on the general government shown in the fiscal accounts
because the NBT balance sheet revalues the stocks of the net general government
according to the program exchange rate.